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Democrats, Republicans Reach A Tentative Debt Ceiling Agreement

Obama Plan Makes Social Security Look Like Welfare

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
Who poses the biggest threat to destroy Social Security? President Barack Obama.

In December 2010, Obama signed a tax deal with his provision for a one-year, 2 percent Social Security payroll tax holiday. It lowered workers' payroll deductions from 6.2 percent to 4.2 percent in 2011. This year, Obama proposed increasing the tax holiday for another year, with workers paying half the old rate -- 3.1 percent -- as part of his American Jobs Act. According to the White House, a typical family earning $50,000 a year could expect to save $1,500.

Obama deftly co-opted the argument that Republicans successfully have used to extend the Bush tax cuts. Last month he argued that if Washington fails to extend the 2011 tax cut, "middle-class families will get hit with a tax increase at the worst possible time."


The president also proposed halving the employer contribution to 3.1 percent for an employer's first $5 million in wages and waiving the full freight for some new hires. Add it all up and Obama wants to cut Social Security payroll taxes by $240 billion next year.

First Washington raided the Social Security trust fund to pay for increased spending. Now Washington is raiding the trust fund to pay for tax cuts.

Stanford University economist John Taylor, who has been an adviser to John McCain, studied the temporary tax cuts proposed to stimulate the economy under George W. Bush and Obama. "These are, at best, short-term boosts, which disappear quickly," Taylor told me, and they "don't reduce the unemployment rate."

Economist Will McBride of the Tax Foundation also believes that the Obama plan would not provide the needed job stimulus. He noted that in 2010, the Social Security fund started paying out more than it takes in. Slashing revenue "just exacerbates that problem." McBride fears that if the Obama jobs bill passes, "Moody's and Fitch will downgrade us (the U.S. credit rating), as well as S&P."

The White House promises that "Social Security will still receive every dollar it would have gotten otherwise." Oh, joy, another IOU.

Be afraid. If a one-year tax holiday becomes a bigger two-year tax holiday, it could snowball. Rep. Peter DeFazio, D-Ore., fears that the cut will be renewed in perpetuity. "If this becomes permanent, then Social Security would be exhausted in 2021, instead of 2037," DeFazio told the Washington newspaper The Hill. DeFazio wants to increase payroll taxes on incomes higher than $250,000 -- the current cap is $106,800 -- to fully fund Social Security. Now, I think DeFazio's proposal would poison any economic recovery -- but at least he is thinking about the fund's solvency.

House Budget Committee Chairman Paul Ryan predicts that the Obama plan could change the way Americans look at Social Security. At the Hoover Institution last week, Ryan told me that if Washington "de-links Social Security's financing from labor and reward -- from payroll taxes to benefit -- we're risking changing the social-insurance nature of the program and turning it into a welfare program."

Close to 40 percent of Americans pay no federal income taxes. Now Obama wants to halve the only payroll tax they pay. That would leave a bigger tax burden on those who do pay federal taxes. And yes, Social Security would start looking like welfare.

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